In re Heyward

• Decision Date: 06 March 2008
• Docket Number: No. 06-40107.,06-40107.
• Citation: 386 B.R. 919
• Parties: IN the Matter of Nathaniel HEYWARD, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

386 B.R. 919

IN the Matter of Nathaniel HEYWARD, Debtor.

No. 06-40107.

United States Bankruptcy Court, S.D. Georgia, Savannah Division.

March 6, 2008.

Barbara B. Braziel, Savannah, GA, for Debtor.

MEMORANDUM AND ORDER

LAMAR W. DAVIS, JR., BANKRUPTCY JUDGE.

FINDINGS OF FACT

Debtor filed Chapter 13 on January 31, 2006. Prior to confirmation, Debtor reported that he would have monthly income of $0 which is below the $45,775.00 applicable median family income in Georgia. Chapter 13 Statement of Current Monthly and Disposable Income, Dckt. No. 8 (February 2, 2006). Therefore, the "applicable commitment period" is 3 years or 36 months. See 11 U.S.C. § 1325(b)(4).

On March 21, 2006, this Court confirmed Debtor's plan of payments of $232 per month for 60 months. Trustee's Report of Confirmation, Dckt. No. 32 (October 19, 2006). The payments were then raised to $288 per month starting in October 2007. Consent Order, Dckt.No. 40 (October 9, 2007). The plan proposed to pay a dividend to unsecured creditors of 1% or $300. Chapter 13 Plan, Dckt. No. 2 (January 31, 2006).

On November 9, 2007, Debtor filed a Motion to Incur Debt for a Reverse Mortgage in order to "use the proceeds to pay off both mortgages and his chapter 13 in full." Motion to Incur Debt for Reverse Mortgage, Dckt.No. 43 (November 9. 2007). After notice and a hearing, this Court entered an order granting the motion to incur a reverse mortgage but reserved the ruling on using the proceeds to pay off the mortgages and reduce/pay off the chapter 13 plan for a future order. Order Granting Motion to Incur Debt. Dckt. No. 56 (December 18, 2007). As of February 19, 2007, Debtor has been pending for 23 months, has paid $3,304.00, and still owes a balance of $12,572.00 on payments projected at the time of confirmation.

The issue raised by the parties is the interpretation of § 1325(b) and whether it requires Debtor to fund a plan for a full term of 36 months or whether Debtor can pay off his plan early by paying the balance remaining on a confirmed plan. The Trustee argues that the "applicable commitment period" in 11 U.S.C. § 1325(b)(4) establishes a temporal period of three years during which debtor must make periodic payments. The Trustee contends that, based upon the plain language of 11 U.S.C. § 1325(b)(4)(B), the only way a plan can be reduced to a shorter time than the "applicable commitment period" is if all allowed unsecured claims are paid in full. Letter Brief Dckt. No. 62 (February 4, 2008). Debtor disagrees with the trustee's interpretation of "applicable commitment period" and argues that the term functions as a multiplier in computing a dollar amount rather than as a temporal requirement for plan duration. Debtor contends that as long as he pays the unsecured creditors his disposable income multiplied by the number of months remaining in the "applicable commitment period," he can pay his Chapter 13 plan early and receive a discharge. Letter Brief Dckt. No. 61 (February 1, 2008).

CONCLUSIONS OF LAW

To alter the terms of his plan by early pay-off, debtor would have to modify his current plan under 11 U.S.C. § 1329. Section 1329 States:

(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to ...

(2) extend or reduce the time for such payments ...

(b)(1) Section 1322(a), 1322(b), and 1323© of this title and the requirements of section 1425(a) of this title apply to any modification under subsection (a) of this title.

11. U.S.C. § 1329 (emphasis added).

Section 1325(a) provides a list of criteria that must met in order for the court to approve a plan. These prerequisites for confirmation, however, are qualified by § 1325(b)(1)(B):

(b)(1) If the trustee of the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan ...

(B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

11 U.S.C. § 1325(b)(1)(B)(emphasis added)

Under the plain meaning of this clause, modified plans, which must be judged by § 1325, cannot be confirmed over objection unless, at the time of modification, a debtor's disposable income is paid to the trustee for the remainder of the commitment period. The "applicable commitment period" is defined by § 1325(b)(4). If this section is triggered, § 1325(b)(4) provides (1) that the "applicable commitment period" shall be three years; (2) that if the debtor's annualized "current monthly income" is higher than the median family income for families with the same number in the household, the "applicable commitment period" is five years; or (3) that if the plan proposes to pay allowed unsecured claims in full, the plan may be less than three or five years, whichever is applicable. See 11 U.S.C. § 1325(b)(4).

Bankruptcy courts have disagreed on the proper interpretation of 11 U.S.C. § 1325's "applicable commitment period" requirement. The majority view is that, as to the treatment of unsecured creditors, the phrase "applicable commitment period" refers to a period of time and is not merely a multiplier used to determine the amount of distribution to unsecured creditors. Under this view, debtor may not pay the plan in full until the entire 36-month applicable commitment period has elapsed, unless debtor pays all the unsecured creditors the entire amount of their claim. See, e.g., In re Nance, 371 B.R. 358, 369 (Bankr.S.D.Ill.2007); In re Grant, 364 B.R. 656, 663 (Bankr.E.D.Tenn.2007); In re Frederickson, 368 B.R. 825, 829-30 (Bankr.E.D.Ark.2007)(in dicta); In re Luton, 363 B.R. 96, 101 (Bankr.W.D.Ark. 2007); In re Slusher, 359 B.R. 290, 305 (Bankr.D.Nev.2007): In re Cushman, 350 B.R. 207, 212-13 (Bankr.D.S.C.2006); In re Girodes, 350 B.R. 31, 35 (Bankr. M.D.N.C.2006); In re Davis, 348 B.R. 449, 455-57 (Bankr.E.D.Mich.2006); In re Gress, 344 B.R. 919, 923 (Bankr.W.D.Mo. 2006); In re Dew, 344 B.R. 655, 661 (Bankr.N.D.Ala.2006); In re Schanuth, 342 B.R. 601, 607-08 (Bankr.W.D.Mo. 2006); In re McGuire, 342 B.R. 608, 615 (Bankr.W.D.Mo.2006); In re Alexander, 344 B.R. 742, 750-51 (Bankr.E.D.N.C. 2006); In re Crittendon, slip op., 2006 WL 2547102, at *4-5 (Bankr.M.D.N.C. Sept. 1, 2006).

The minority view argues that the "applicable commitment period" phrase relates to the projection and calculation of a fixed sum, which is based on a debtor's disposable income multiplied by the length of the "applicable commitment period" for that debtor. Thus, under this view, this sum may be paid in less than 36 months for below-median income debtors or in less than 60 months for above-median income debtors without violating § 1325(b)(4)(B). See e.g., In re McGillis, 370 B.R. 720, 734 (Bankr.W.D.Mich.2007); In re Swan, 368 B.R. 12, 23-27 (Bankr.N.D.Cal.2007); In re Brady, 361 B.R. 765, 776-77 (Bankr D.N.J.2007): In re Fuger, 347 B.R. 94, 101 (Bankr.D.Utah 2006): In re Kagenveama, 2006 Bankr.Lexis 2759, at *8 (Bankr.D.Arizona 2006).

I agree with the majority view for the following four reasons. First, the express language of the statute clearly indicates that debtor must perform his plan for a minimum of three years.¹ "The starting point in any case involving the meaning of a statute [ ] is the language of the statute itself." Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210, 99 S.Ct. 1067, 1073, 59 L.Ed.2d 261 (1979). "In construing a federal statute it is appropriate to assume that the ordinary meaning of the language that congress employed `accurately expresses its legislative purpose.'" Mills Music. Inc. v. Snyder, 469 U.S. 153, 164, 105 S.Ct. 638, 645, 83 L.Ed.2d 556 (1985)(quoting park `n fly Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 194, 105 S.Ct. 658, 83 L.Ed.2d 582 (1985)). "[F]or where, as here, the statute's language is plain, the sole function of the courts is to enforce it according to its terms.'" United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989)(quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917)).

"[T]he strongest argument supporting the majority view is the unambiguous text ... that provides a plan may be shorter than the applicable commitment period only if unsecured creditors are paid in full." In re Luton, 363 B.R. at 101. "Why would congress include this provisions if all that was required of a chapter 13 debtor was to pay a set amount of money under the plan? Under the monetary view, section 1325(b)(4)(B) is rendered at best a tautology, and at worst entirely surplusage." In re Slusher, 359 B.R. at 303.

The term "applicable commitment period" "uses a word with temporal meaning: `period' means a `chronological division,'" "length of time, "portion of time," or a "length of existence." In re Schanuth, 342 B.R. At 607; In re Slusher, 359 B.R. at 301; In re Davis, 348 B.R. at 456; see also In re Grant, 364 B.R. at 663. "Similarly, the word `commitment' is defined in webster's as `the act of doing or performing something' and is also defined as `the obligation or pledge to carry out some action.' The terms `commitment' and `period' are therefore terms that by their ordinary, everyday meanings contemplate or suggest action by the debtor over a period of time." In re Davis, 348 B.R. at 456 (internal citations omitted).

Subsection (b)(4) "speaks only in terms of specific time increments i.e., three years, five years, or fewer years in the event that allowed unsecured claims will be paid in full." Thus, "there are no terms indicating that the three or five year time periods expressly set forth therein are to be interpreted as anything other...